Liquidity

Income tax starts once taxable income passes the basic personal amount, and a separate provincial or territorial amount applies on top, so the break-even point shifts every year with indexation and differs by where you live. Look up the current amounts on the CRA site or in the year's return package. Credits for tuition, disability, pension income or dependants push the point higher. Filing can still be worthwhile or required with no tax owing, for benefits and credits.

A tax credit reduces the tax you owe, whereas a deduction reduces the income the tax is calculated on. Non-refundable credits, such as the basic personal amount or tuition, can bring tax down to nil but pay nothing beyond that. Refundable credits, such as the GST/HST credit, are paid out even when no tax is owing. Almost every credit is claimed on the return, so filing is what releases the money.

Taxable income appears near the end of the income and deduction pages of your T1. Start with total income, subtract the deductions you claim to reach net income, then subtract the further deductions that apply to arrive at taxable income. The quickest place to read it is your notice of assessment or the summary page in your tax software. My Account shows assessed figures for earlier years if you need them.

Reducing tax by using the rules is legal; hiding income is not. Legitimate planning means registered plans, deductions and credits you qualify for, sensible timing of income and capital gains, and a business structure that fits what you do. An arrangement whose main purpose is to defeat the tax rules can be undone under the general anti-avoidance rule, with interest and penalties. Not reporting income is evasion and carries prosecution risk.